Austerity has failed. An open letter from Piketty to Merkel

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This topic contains 24 replies, has 8 voices, and was last updated by  Thomas Paine 5 years, 10 months ago.

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  • #278

    Davis
    Moderator

    Drama over the Grexit has gone nutty as so called “moderate right” wing former Belgian Prime Minister now resident nut case of the EU parliament blabbed on about Greece citing the most panfully cliché nonsense. Tsiparas, current President of Greece calmly begged to differ.

    Piketty…the recent intellectual super star of both North America and Europe (rare for French intellectuals) for his writing on modernwork on a rational and humanist analysis of economics (Capital in the 21st Century) and colleagues have written an open letter to Merkell laying out a moderate response to a radical ideology. When we speak of Austerity we don’t speak of government spending cuts…we talk about painful, cruel cuts…of which many voices argue again and again are needless…if not an agent that worsens economic, social and political problems.

    Enjoy the letter if you have time to read.

    #312

    Virgil
    Participant

    You pretty much scent marked the this thread in your first sentence. “…….Belgian Prime Minister now resident nut case of the EU parliament blabbed on about Greece citing the most panfully cliché nonsense……”

    #317

    Davis
    Moderator

    Well I did live in Belgium while he was the Prime Minister there and I am quite familiar with how his style changed from a well spoken politician in Belgium who was able to handle all of the many problems any politician faced in the polarised country as well as offer insightful and nuanced commentary … to an EU Parliament rant-dog of the Nigel Farage standard. Groan

    But yes…I have a biased point of view (as most members do here on one topic or another) and scent marking from the beginning is a courtesy to the reader (which I ought to do more often).

    • This reply was modified 5 years, 10 months ago by  Davis.
    • This reply was modified 5 years, 10 months ago by  Davis.
    #335

    Virgil
    Participant

    I’ve been staying up on the Greek issue for some months now. I read everything you wrote and read the article you linked to and watched the videos you linked to. Not one thing you cited backed up the opinion you’re putting forth. In fact the article cited completely misrepresents 50% unemployment for people under 25, the number of children in poverty and the number of Greeks who have lost their homes as being the fault of the EU. But what’s a little bit of distortion of the truth to get things to fit into the ideology you embrace, right?

    And Austerity has not failed in Greece because it’s never been attempted without partisan implementation and distortions to solidify the political power of Alexis Tsipras and his cronies. In his stammering reply video at the EU he admits as much as admits they’ve not really done what they could to have corrected the problems way before now…

    • This reply was modified 5 years, 10 months ago by  Virgil.
    #338

    Virgil
    Participant

    I just found this at the head of my news page.

    The latest: Tsipras, in personal speech, admits mistakes

    12:35 a.m.
    In a speech with a strongly personal tone, Prime Minister Alexis Tsipras says he negotiated as hard as he could and admits his government had made mistakes during his barely six-month tenure as he fought to win bailout funds for his debt-ridden country.
    Speaking in a late-night parliament session, Tsipras described the last few months as a war in which difficult battles were fought and some were lost. “Now I have the feeling we’ve reached the demarked line. From here on there is a minefield,” he said.
    He added that he doesn’t have the right to hide from the Greek people that the measures Greece must take are far from his left-wing party’s pre-election pledges.

    In other words he was lying to the people before they voted on the referendum when he said a majority NO vote on it would give Greece a stronger bargaining position… Or he didn’t know WTF he was talking about…

    #343

    Gallup’s Mirror
    Participant

    I read everything you wrote and read the article you linked to and watched the videos you linked to. Not one thing you cited backed up the opinion you’re putting forth.

    Davis is actually citing sources of information, allowing others to verify that his assertion is true. A group of leading economists wrote an open letter to Merkel pointing out that drastic tax hikes and harsh spending cuts (austerity) has worsened rather than resolved the depression in Greece.

    In fact the article cited completely misrepresents 50% unemployment for people under 25, the number of children in poverty and the number of Greeks who have lost their homes as being the fault of the EU. But what’s a little bit of distortion of the truth to get things to fit into the ideology you embrace, right?

    You’re being rather hard on yourself, Virgil.

    Follow Davis’ example and cite your sources of information which falsify the claims that six leading economists made in the letter. That way nobody will think you’re distorting the truth to fit the ideology you embrace.

    And Austerity has not failed in Greece because it’s never been attempted without partisan implementation and distortions to solidify the political power of Alexis Tsipras and his cronies.

    That’s fascinating, Virgil.

    The Greek government announced the first austerity measures on May 1, 2010 which Germany made conditional to sign the first EU/IMF loan package. (Source) Greece announced the next austerity package in October 2011 in exchange for a second bailout loan. (Source)

    Alexis Tsipras took office on January 25, 2015, less than six months ago. Apparently, Tsipras and his cronies are so powerful they effected “partisan implementation” nearly five years before they were running the Greek government. However they did it (perhaps by time travel?) they succeeded. Greece had a balanced budget two years ago and now runs a budget surplus.

    Now why do you suppose the Greek depression not only continues unabated, but the Greek debt has also risen as a percentage of GDP? I’ll give you a hint. It’s not because a budget surplus makes the debt that much bigger.

    Greek gdp
    (Source: Reuters via Twitter)

    In his stammering reply video at the EU he admits as much as admits they’ve not really done what they could to have corrected the problems way before now.

    Okay, Virgil. Let the rest of us in on the big secret. What’s the solution to the economic depression in Greece? What could stammerin’ Alexis Tsipras have really done to fix the problem long before now?

    Remember to cite your sources this time.

    #346

    Virgil
    Participant

    First.
    Here’s the source I forgot to cite. All you had to do was c&p the title.

    Second.
    There’s no sense in discussing anything related to Greece’s debt for a while. Everything we know about it in an illusion only now being dealt with. It seems they paid Goldman Sachs $500 million to help them conceal the real debt before they were accepted in the EU. Now the Greek government may be suing G&S.

    But it’s been “known” for five years.

    The past two “austerity plans” were put together with political agendas/favoritism over financial common sense and were predicted for doom from the beginning. Example here in a quote:

    ….the politics of the plan is too timid. It avoids taking on powerful lobbies who benefit from wasteful public spending. For example cuts in medical spending of €310m are promised this year. That might sound like a lot, but Greece’s over-generous markups to pharmacists add something like €1.5 billion a year of extra spending to its drugs budget alone. The government also seems to lack the stomach to see its plan through. It has said that it will cut civil-service jobs—but the suspicion is that those on temporary contracts, not the expensive and virtually unsackable people on permanent contracts, will go. Even the railways, which are down for privatisation, may well be sold with guarantees protecting jobs and services.

    from June 2011

    In the video Davis linked to Guy Verhofstadt outlines…
    Lack of reforms undertaken on the political level while saddling the citizens with all the burden
    Lack of a sincere long range plan
    Lack of legislation to stop cronyism
    Lack of efforts to downsize the 24% of Greeks working for the government
    Lack of reform to end privileges, exemptions and political favors to special groups, cities and islands.

    Listen to the 2 minute response by Tsipras. He mentions cracking down on people avoiding taxes through Swiss banks.

    Meanwhile with a Black Market economy estimated at 25% the size of the GNP….. There’s talk that the problem is due to the high number of ‘self employed’ Greek citizens without mention of the politicians and bureaucrats who are not only turning a blind eye to it but profiting from it. No mention of organized crime in the black market. Every item that is profitable for the black market is so because of the taxes put upon it. PREDICTION.: Watch for Greece to crack down on self employed people and no others in a lame effort to curtail their black market economy.

    #348

    Davis
    Moderator

    Gallups response pretty much sums up what I would have said only much better. You have cited some news articles now but sources that don’t back up the extreme bizzare claims you’ve made about austerity or the Greek economy.

    There’s no sense in discussing anything related to Greece’s debt for a while.

    The main topic of this post is the epic failure of extreme austerity in Europe. Then speeches in the EU parliament are a side show.

    But what’s a little bit of distortion of the truth to get things to fit into the ideology you embrace, right?

    Ever since I read your many distortions of truth to justify you screwed up ideology of mass Muslim internment camps…I simply cannot take you and the term “truth distortion” seriously.

    #371

    Arcus
    Participant

    Yeeeeeaaah… Trying to insult and shame the largest creditor may not be the best way to gain concessions, especially with a horribly flawed historical comparison. If the austerity measures were not merely about increasing taxes and tax collection, cutting pensions, and reducing a bloated public sector, but included terms such as stringing up their past leaders by the neck, lose 10% of their territory, have their country cut in half, 50 years of military occupation, and make 20% of the population into refugees, then there may have been a point in there.

    Anyway, back on planet Earth there is no way for Greece to avoid austerity. The peoples of the other European countries have already given the Greeks €1000 each and don’t want to contribute more unless the Greeks reform their country, which includes austerity. The other option is for the Greeks not to reform, which will lead even more austerity than option 1.

    As for austerity having failed, Ireland, Latvia, Lithuania, Spain, Portugal, and the UK have all cut state budgets and all are today growing at a healthy clip. So why haven’t it worked in Greece? I’ll let Olivier Blanchard explain:

    Critique 3: Growth-killing structural reforms, together with fiscal austerity, have led to an economic depression
    Given the dismal productivity growth record of Greece before the program, a number of structural reforms were seen as necessary, ranging from a reform of the tax administration, to reduced barriers to entry in many professions, to reforms of pensions, to reforms of collective bargaining, to reforms of the judicial system, etc.
    Many of these reforms were either not implemented, or not implemented on a sufficient scale. Efforts to improve tax collection and the payment culture failed completely. There was fierce resistance to open closed sectors and professions. Only 5 of 12 planned IMF reviews under the current program were completed, and only one has been completed since mid-2013, because of the failure to implement reforms.
    The decrease in output was indeed much larger than had been forecast. Multipliers were larger than initially assumed. But fiscal consolidation explains only a fraction of the output decline. Output above potential to start, political crises, inconsistent policies, insufficient reforms, Grexit fears, low business confidence, weak banks, all contributed to the outcome.

    #381

    Davis
    Moderator

    You are comparing difficult budget cuts in Ireland, Latvia and Spain with those in Greece? Really? I weathered the cuts here in Spain and I sort of noticed them (and I am low low income). The only reason why Spain (and the Baltics and Ireland) rebounded was because they refused (or their population did not allow them) to implement full out austerity which Germany and Brussels screamed armageddon would happen if radical austerity wasn’t enacted. It wasn’t and…lo and behold…their economies didn’t collapsed…they have rebounded. Remember those alarm bells? Berlin and Brussels doesn’t.

    Greece implemented a brutal set of full out austerity (something people in Dublin or Lisbon would not recognise) and their economy collapsed. Now they are being asked to utterly gut what little is left in their virtually inhuman social programs budget. Sounds like a plan. No doubt their economy will recover when the already growing number of homeless and unfed grows while something like a “job” become a memory of the past.

    Lets throw Greeks into the gutter and let them become the Baltimore or Detroit of the EU.

    • This reply was modified 5 years, 10 months ago by  Davis.
    • This reply was modified 5 years, 10 months ago by  Davis.
    #385

    Arcus
    Participant

    This again? Let’s look at government spending as percentage of GDP from highs in 2009/10 to lows in 2013/14, retrieved from Eurostat:

    -Ireland cut from 47.6% i 2009 to 39% in 2014. Down 8.6%
    -Latvia cut from 44% i 2010 to 36% i 2013. Down 8%.
    -Lithuania cut from 44.9% in 2009 to 34.9% in 2014. Down 10%(!)
    -The UK cut from 49.7% in 2009 to 44.4% in 2014. Down 5.3%.

    What’s the trend with these countries? They faced the cuts head on and are now growing at a more healthy rate.

    And what about the laggards?
    -Portugal cut from 51.8% in 2010 to 49% in 2014. Down 2.8%.
    -Spain cut from 45.8% in 2010 via 47.3% in 2012 to 43.6% in 2014. Down 2.2%.
    -Greece cut from 54% in 2009 via 60.1%(!) in 2009, and finally went down to 49.3% in 2013. Down 4.7%.

    Now take a look at GDP growth rate. Notice the correlation between timing of cuts in government expenditure and growth?

    While I am absolutely not denying that Keynesian fiscal counter-cyclical stimulus works, the point of it is to save in good years and spend in bad. However, if you don’t save in good years there is nothing to spend in bad years, and this is the lesson learned. Surprisingly, even some politicians on the left are starting to understand .

    #403

    Davis
    Moderator

    We’ve already covered this Arcus. Percentage of government spending does not give us any information. We are not talking about over all spending. We are talking about deep cruel cuts for social programs and other essential services.

    #416

    Gallup’s Mirror
    Participant

    Virgil: In fact the [titular] article cited completely misrepresents 50% unemployment for people under 25, the number of children in poverty and the number of Greeks who have lost their homes as being the fault of the EU.
    Gallup: …cite your sources of information which falsify the claims [made in the article].
    Virgil: Here’s the source I forgot to cite.

    As of this writing, the Yahoo article you cited makes no such falsification. In fact it makes no mention of unemployment percentages for people under 25, the number of children in poverty and the number of Greeks who have lost their homes.

    There’s no sense in discussing anything related to Greece’s debt for a while. Everything we know about it in an illusion only now being dealt with.

    You did a similarly incompetent job at backing up your claim that “everything we know about [Greece’s debt] is an illusion”.

    It seems they paid Goldman Sachs $500 million to help them conceal the real debt before they were accepted in the EU. Now the Greek government may be suing G&S.

    The cited article does not say Greece paid Goldman Sachs to help them conceal the debt. It says Goldman Sachs made up to $500 million from transactions in which it hid a small percentage of Greek debt. (That is a sizable profit motive for GS to make Greece look good by making some money disappear.) Indeed, if the Greek government knew and actually put GS up to it, on what grounds could they sue GS for damages?

    “Scrutiny and analysis of the documents and email exchanges could give Greece grounds to seek compensation and assess if the deals were executed for the sole purpose of concealing the country’s debts.”

    “The past two “austerity plans” were put together with political agendas/favoritism over financial common sense and were predicted for doom from the beginning. Example here in a quote:

    The cited article from June 2011 predicts austerity is doomed because it shrinks the Greek economy which in turn drives the debt higher as a percentage of GDP: “The attempt to raise just over €14 billion in new taxes over the next five years will further depress the economy, so the extra levies will raise less than expected and the country’s debt will be even harder to bear.” It does not predict that austerity is doomed due to poor execution.

    Austerity means policies which reduce budget deficits: spending cuts, tax increases or both. That’s all. Austerity succeeded in reaching that goal: Greece is running a budget surplus. But it doesn’t matter. Austerity failed to reverse the depression in Greece and made it worse.

    In the video Davis linked to Guy Verhofstadt outlines…
    Lack of reforms undertaken on the political level while saddling the citizens with all the burden
    Lack of a sincere long range plan
    Lack of legislation to stop cronyism
    Lack of efforts to downsize the 24% of Greeks working for the government
    Lack of reform to end privileges, exemptions and political favors to special groups, cities and islands.

    The solution to mass unemployment? Mass layoffs.

    How do you fix an economy crippled by depressed spending? Spend less.

    I enjoy crackpot economics. Thanks for the laugh, Virgil.

    Listen to the 2 minute response by Tsipras. He mentions cracking down on people avoiding taxes through Swiss banks.

    How is this relevant? A crackdown on tax fraud– which would help– is not austerity.

    Meanwhile with a Black Market economy estimated at 25% the size of the GNP….. There’s talk that the problem is due to the high number of ‘self employed’ Greek citizens without mention of the politicians and bureaucrats who are not only turning a blind eye to it but profiting from it.

    What “talk” is that? And by whom? Still no citations, Virgil?

    No mention of organized crime in the black market. Every item that is profitable for the black market is so because of the taxes put upon it.

    Higher taxes under austerity promotes black market sales and profits.

    Exactly what point are you arguing here, Virgil?

    PREDICTION.: Watch for Greece to crack down on self employed people and no others in a lame effort to curtail their black market economy.

    It’s more likely Greece will crack down on tax fraud and tax avoidance, which would boost revenues without austerity (which means tax hikes or spending cuts).

    #432

    Gallup’s Mirror
    Participant

    Now take a look at GDP growth rate. Notice the correlation between timing of cuts in government expenditure and growth?

    No.

    1. You cited spending cuts in ranges from 2009 or 2010 to 2013 or 2014, then linked to a chart showing GDP growth as of 2012. You’re implying causality when you failed even to reach correlation.

    2. You cited spending cuts starting in 2009 and 2010, but the upward trend begins uniformly (except Greece) at the end of 2008. Cause must precede effect. How do spending cuts cause a reversal which began at least a year earlier?

    3. As of the 2012 (the middle of the date range you provided) the chart shows the GDP of Ireland was flat; Spain, Portugal and Greece were in negative growth; Lithuania and Latvia were shrinking slightly; and only the UK was in the black and growing. I see correlations between the depth of the drop in 2008 and the height of the subsequent bounce, but otherwise the results you attribute to spending cuts vary rather conspicuously.

    4. Even setting aside these other problems, you are presenting data in a vacuum. How about the global financial crisis of 2008? For instance, if a government is spending less overall but spending more on social safety nets or economic stimulus, how can spending cuts be cited as the fix?

    The presented data does not support your claim and lacks any supporting context.

    #512

    Thomas Paine
    Participant

    Thanks @ Gallup and Davis for a fine display of good conomic research and critical thinking.

    About the time Virgil started to paint Goldman Sachs as being fooled into heping Greece enter the EU was when he went from being misrepresentative to being essentially a right wing propagandist.

    The misery, profiteering and criminal greed propagated by GS is the stuff of legend.

    Read Griftopia by Matt Taibbi and if you aren’t sickened by the behavior of the finance community world wide then you either profit with them, are a sociopath and more likely than that BOTH.

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